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Basic Question 2 of 5
For three years, Alan Gordon, CFA, has been an investment-banking consultant to Electronics, Inc. When Electronics decided to do a secondary public offering, the company asked Gordon to put out a favorable research report on Electronics. He agreed to do so, although he knew the company was having serious problems manufacturing its main product. His report included only: (1) a one-sentence summary of Electronics' line of business; (2) a table of Electronics' stock price history copied from Standard & Poor's, without acknowledgment; and (3) a statement that the price of Electronics' stock would probably double in the next year. Which of the following CFA Institute's Standards of Professional Conduct did Gordon violate?
II. Standard I (D) Misconduct
III. Standard III (B) Fair Dealing
IV. Standard V (A) Diligence and Reasonable Basis
V. Standard I (B) Independence and Objectivity
I. Standard III (C) Suitability
II. Standard I (D) Misconduct
III. Standard III (B) Fair Dealing
IV. Standard V (A) Diligence and Reasonable Basis
V. Standard I (B) Independence and Objectivity
User Contributed Comments 14
| User | Comment |
|---|---|
| hagi10 | that is a good question... |
| TheProfet | Choice I: Standard III(C) deals with investments for a client, not producing a fraudulent or erroneous report on the company's stock growth prospects. Choie IV: Standard V(A) - Diligence and Reasonable Basis was violated, as Gordon has no real basis for making such an outlook on Eletronics' stock price. |
| bananabun2 | would Alan's action be regarded as a violation of misconduct as well? |
| SueLiu | That's a tricky one since you can say he engaged in dishonest conduct (lying) by issuing a report he didn't believe was true. But then again, you can't really prove that...maybe he was blindly optimistic? |
| danlan2 | Misconduct means wrond conduct without willingness, for example, being drunk at work, etc. So it's not here. |
| TammTamm | From all the analyst did wrong, it's hard to believe he only violated 2 standards but IV and V are correct. |
| freda | misconduct means deliberate wrongdoing, an activity that transgresses moral or civil law, hence, it is done with willingness....to me the answer should also include violation of I(D)-Misconduct. |
| Crown01 | I think, there was not enough evidences for "misconduct". However it should be but not so strongly be. |
| johntan1979 | I also believe that Standard I(D) was violated, which stated: "Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence." It is very clear that Gordon knowingly deceived others. He knew the investment was bad, but put in a good word for it. Definitely a violation. |
| johntan1979 | And for those who argued that there is not enough evidence to convict Gordon on the basis of Standard I(D), what about Standard I(B)? What evidence is there to prove Gordon's independence and objectivity? I think we should not read too far beyond what is laid out in the question. The evidences are clearly there. He knew about the manufacturing problem. He knowingly issued a contrary recommendation. So II, IV and V are violated. |
| Shaan23 | John ID i would not include because it deals more with personal matter. |
| sgossett86 | II as well because his action reflected adversely on professional reputation, integrity, & competence |
| schweitzdm | I think standards I(D) and I(B) might not be included in the answers since they regard client relationships? Am I wrong in this? |
| Inaganti6 | Wow i got something right Johntan1979 didn't. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
CFA® 2025 Level I Curriculum, Volume 6, Module 3.